COVID-19 and Trends in Commercial Real Estate

Dunlap Bennett & Ludwig PLLC

In January, the National Association of Realtors published its “Commercial Real Estate Trends & Outlook.” The summary of the report states, “the commercial real estate market continues to recover, but sales, leasing, and construction activity remain below year-ago levels. The recovery also remains uneven, with stronger investor interest for land, multifamily, and industrial properties than for hotels, retail, and office properties.” The report is a good reminder that real estate is cyclical, and there are things attorneys should look for to protect clients who own, rent, or invest in such projects. Hiring a knowledgeable real estate attorney can assist in ensuring you are aware of all of the details regarding the real estate process, which can quickly become overwhelming.

In the early 1990s, the commercial real estate market in the United States imploded. Demand could not support the incredible pace of construction of commercial properties. A senior partner in the Tysons Corner office of Dunlap Bennett & Ludwig remembers well that the result was a number of “see-through buildings,” that is, buildings with exterior walls but no interior build-out, including some here in Tysons Corner.

Eventually, many of the loans secured by these see-through buildings went into default, and litigation ensued. The banks which provided the construction funds often required personal guarantees. However, many of the loans were made without sufficient due diligence and came to be known as “liar loans.” In some instances, the banks had demanded a personal guarantee from the spouse of a building owner. The senior Tysons Corner partner remembers litigation over the enforceability of these guarantees. Other litigation over the fate of such loans and properties stretched late into the 1990s.  

In 1989 the United States established the Resolution Trust Corporation to act as a receiver for the various real estate assets and loans held by the country’s savings and loan associations. The Resolution Trust Corporation eventually served as the receiver for 747 ventures as the real estate crises went on. Over time, the situation began to resolve as new investors bought the defaulted loans for pennies on the dollar and others began to find ways to bring new value to the see-thru buildings.

Though there is no savings and loan crisis raging today, the past is often a prologue to current events. The National Association of Realtor’s publication indicates that, as of the start of Q4 in 2020, dollar sales volume for in the large commercial real estate market contracted 56% from the prior year, a year marked primarily by the turmoil of COVID-19. However, the sales volume for land increased 3%.

How a lender is protected from loss or a borrower protects their personal assets is a complex issue. And, as a Judge once told this writer, “you can call the attorneys before, or you can call them after, but you are going to call them.” It’s important to hire an attorney you can trust. The expert team of real estate attorneys at Dunlap Bennett and Ludwig are ready to advocate for you when it comes to protecting you in this process. Questions relating to the enforceability of personal guarantees, rights of assignees of promissory notes, and the defenses of debtors were heavily litigated in the 1990s. These and other issues will need to be addressed again, either in the courtroom or in good document drafting. Thankfully, there are lessons in the past for interest holders and for the attorneys that represent them today.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Dunlap Bennett & Ludwig PLLC | Attorney Advertising

Written by:

Dunlap Bennett & Ludwig PLLC

Dunlap Bennett & Ludwig PLLC on:

Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
- hide
- hide

This website uses cookies to improve user experience, track anonymous site usage, store authorization tokens and permit sharing on social media networks. By continuing to browse this website you accept the use of cookies. Click here to read more about how we use cookies.